Bank of Nova Scotia Earnings - Q1 2026 Analysis & Highlights
Bank of Nova Scotia reported strong Q2 2026 earnings with double-digit revenue growth and positive operating leverage, while navigating macroeconomic headwinds including geopolitical tensions, elevated energy costs, and trade uncertainty. The bank is executing on strategic initiatives across wealth management and international banking, deploying AI capabilities, and maintaining robust capital ratios while returning capital to shareholders.
Key Financial Results
Adjusted earnings of CAD 2.7 billion or CAD 2.02 per share for Q2 2026
Return on equity of 13.2%, up 270 basis points year-over-year, with expectations to reach 14% plus in fiscal 2027
Revenue growth of 13% year-over-year
Net interest income grew 10% year-over-year as net interest margin expanded 24 basis points from higher business line margins and lower funding costs
Net interest margin expanded 6 basis points quarter-over-quarter
Non-interest income was up 17% year-over-year, mainly from higher wealth management revenues, investment gains, and income from associated corporations
Expenses grew 7% year-over-year, with technology spend increasing 9% to CAD 1.4 billion
Pre-tax pre-provision profit growth of 20% year-over-year
Productivity ratio improved by 290 basis points year-over-year to 52.5%
Effective tax rate decreased to 23.3% quarter-over-quarter
Business Segment Results
Canadian Banking
Earnings of CAD 935 million, up 53% year-over-year
Pre-tax pre-provision earnings up 13% year-over-year
Loans grew 3% year-over-year from mortgage growth of 4%, while commercial and small business loans grew 1%
Day-to-day and savings deposits grew 3% year-over-year
Deposits declined 3% year-over-year, mostly in term deposits
Net interest income grew 7% year-over-year from loan growth and margin expansion
Net interest margin expanded 4 basis points sequentially
Non-interest income was up 10% year-over-year from higher mutual fund distribution fees and credit card revenues
Provision for credit losses ratio was 50 basis points with impaired PCLs declining 2 basis points quarter-over-quarter
Expenses were up 3% year-over-year
Year-to-date operating leverage was 3.9%
Commercial loans were up 2% sequentially this quarter
Small business portfolio continues to grow in the high-single digits
Spot credit card growth is expected to reach mid-single digit by the end of the year
Mortgage volumes should keep pace with peers
Scotia High Interest Savings Account launched, offering tiered regular interest rates based on client's total relationship balance
Global Wealth Management
Earnings of CAD 474 million, up 19% year-over-year
Canadian earnings up 20% and International up 12%, mainly in Mexico
Spot AUM and AUA grew 18% and 15% year-over-year from market appreciation and higher net sales
Revenues were up 14% year-over-year from higher mutual fund fees, net interest income, and brokerage revenues
Expenses were up 12% year-over-year from higher volume-related expenses
Year-to-date operating leverage was 2.1%
Net sales for the quarter were CAD 4.7 billion, four times Q2 2025 levels and marking the seventh consecutive quarter of positive net flows
ROE came in at 17.9%, up 210 basis points year-over-year
Total closed referrals were CAD 9 billion year-to-date, largely from retail and small business segments to wealth
Closed referrals between commercial banking and wealth were CAD 2.8 billion, double what was reported in the first half of last year
Year-to-date net sales in global asset management business were CAD 3.1 billion and ranked third amongst peers in long-term retail mutual fund sales, up from fifth in the same quarter last year
International wealth business earnings were up 12% year-over-year and 22% in Mexico
Eight Euromoney Private Banking Awards received across the footprint
Mexico's asset management unit recognized by Morningstar with six funds ranked in the top 10 among all four and five star funds
Global Banking and Markets
Earnings of CAD 457 million, up 11% year-over-year
Revenue grew 9% year-over-year as capital markets revenues were up 25% while business banking was down 7%
Net interest income was up 5% year-over-year, primarily due to higher margins
Non-interest income was up 10% year-over-year due to higher trading related revenues from equities, commodities, and fixed income
Expenses were up 10% year-over-year, mainly due to higher technology and personnel costs
Loans grew 1% quarter-over-quarter or up 3%, excluding Asia portfolio which is in run-off
International Banking
Earnings of CAD 701 million, up 3% year-over-year
Revenue was up 7% year-over-year, with net interest income up 5% and non-interest income up 14%
Net interest margin of 476 basis points expanded by 22 basis points quarter-over-quarter from lower funding costs in Latin America and inflation benefits mainly in Chile
Deposits were up 5% year-over-year as personal deposits grew 3% and non-personal grew 7%
Loans were down 2% year-over-year, as non-retail loans declined 8%, while retail grew 4%
Operating leverage was 3.2% year-to-date
Provision for credit losses ratio was 166 basis points, mainly from impaired
Effective tax rate was 17.3%
Pre-tax pre-provision earnings were up 12% year-over-year
Revenue growth of 7%
Performance in Mexico was particularly strong with revenue up 8% year-over-year and earnings up 25% year-over-year
Retail loans continued to grow across the footprint by 4% year-over-year, with non-mortgages growing by a strong 7%, especially in Mexico and the Caribbean
Commercial loan growth was up 2% quarter-over-quarter
Deposits climbed 3% quarter-over-quarter and 5% year-over-year
Capital Allocation
Quarterly dividend increase of CAD 0.04 per share announced
Capital returned to shareholders over the past 12 months of CAD 7.5 billion through share buybacks and dividends
Share repurchases of 6.4 million shares in the quarter, representing 13 basis points of capital usage
CET1 capital ratio remained strong at 13.3%, even after repurchasing shares
Capital deployment priority is organic growth, followed by share buybacks and strategic tuck-in acquisitions
Expectation to keep pace of capital returns while maintaining strong capital ratios
Model parameter updates consumed 13 basis points of capital
Total risk weighted assets was CAD 474 billion, up CAD 1.6 billion quarter-over-quarter
Industry Trends and Dynamics
Term deposit balances continued to contract industry-wide during the quarter
Retail GIC maturities retention rate of over 90% despite intensifying deposit competition
Deposit flows moving into retail mutual funds and wealth business
Deposit competition intensifying in the market
Mortgage capital markets business accelerating as part of US growth strategy
Competitive Landscape
Ranked third amongst peers in long-term retail mutual fund sales, up from fifth in the same quarter last year
Scotia Intelligence and Scotia Navigator launched to deliver AI securely and at scale for employees and clients globally
Scotia Intelligence unifies capabilities, platforms, and governance required to deliver AI securely and at scale
Scotia Navigator puts AI directly into the hands of employees across the bank with advanced assistance that automates routine tasks
Model-agnostic approach to AI, selecting models based on performance, security, and cost
Enterprise data platform ensures data is discoverable, trusted, and ready for AI consumption
Unified enterprise AI platform being built rather than fragmented tools
Macroeconomic Environment
Macroeconomic environment remains uncertain, shaped by geopolitical developments and elevated energy costs
Trade headwinds continue to affect trade flows and GDP growth outlook
Inflation remains a key focus for policymakers in Canada
Near-term growth in Canada has moderated amid continued trade headwinds
Elevated energy costs, persistent trade uncertainty, and higher unemployment continue to pressure both consumers and businesses
Prolonged inflationary pressures could further strain vulnerable client segments
Canadian commercial performance remains resilient and in line with expectations, with continued attention on potential second order impacts from trade developments and sustained elevated oil prices
Mexico macroeconomic indicators continue to present a mixed outlook, given trade uncertainty
Chile and Peru credit performance has been stable, supported by commodity fundamentals, although potential impact of higher energy costs remains an area of focus
Oil exporting nation status benefits Canada with current oil prices allowing for significant fiscal stimulus
CUSMA is not something that will be ripped up, with business community appreciating that Canada, US and Mexico need each other
Foreign direct investment sentiment toward Canada has improved significantly
Pension funds in Canada increasingly looking inside borders rather than outside
Growth Opportunities and Strategies
Scotia High Interest Savings Account launched as relationship-based account with tiered regular interest rates
Commercial loan growth expected to accelerate given robust pipeline growth
Mortgage capital markets business accelerating as part of US growth strategy
AI deployment across Scotia Intelligence and Scotia Navigator platforms
Four key AI principles: security, flexibility, data, and platform-first thinking
Security embedded into foundation of AI infrastructure by design
AI-driven scanning and monitoring to proactively identify and mitigate risks
Enterprise data platform investment to ensure data is clean, well-governed, and richly described
Unified enterprise AI platform enabling faster deployment, consistent governance, and repeatable scale
Connectivity between Canadian Banking and Global Wealth Management strengthening through growing retail fund sales and two-way referrals
Deeper client relationships across the bank through referral volume increases
Retail and commercial loans growth in International Banking with non-mortgage loan growth outpacing mortgage growth
Capital markets loans growing in Global Banking and Markets
Salesforce rebuilding in Canadian commercial, particularly in mid-market with boots on the ground in high growth markets
Commercial pipeline grown substantially with loan and deposit pipelines materializing
Real estate pay downs stabilized, helping overall balance growth
Tuck-in acquisitions in Global Banking and Markets for mortgage capital markets business to get FDIC insurance and sticky deposits
Tuck-in acquisitions in Global Wealth Management for US offshore booking point for Mexican business
Tuck-in acquisition size expected to be CAD 200 million to CAD 400 million
Credit Quality and Risk Management
All-bank provisions were CAD 1.2 billion or 66 basis points, up 5 basis points quarter-over-quarter
Impaired provisions were CAD 1.1 billion or 61 basis points, up 3 basis points quarter-over-quarter
One corporate account in International Banking represented about 7 basis points of all-bank impaired PCLs
Performing provisions were 5 basis points, up 2 basis points quarter-over-quarter
Allowance for credit losses increased to CAD 7.3 billion or 96 basis points, up 2 basis points quarter-over-quarter
Gross impaired loans increased 4 basis points quarter-over-quarter to 99 basis points
Retail gross impaired loans declined across both Canada and International Banking
Non-retail GIL formations increased CAD 368 million quarter-over-quarter
Non-retail portfolio remains well positioned and underwritten to strong credit standards
Canadian Banking provisions were CAD 575 million or 50 basis points
Retail total PCLs were CAD 435 million, flat quarter-over-quarter
Performing PCLs were up CAD 22 million quarter-over-quarter
90-plus day delinquency for unsecured products improved 20 basis points quarter-over-quarter
International Banking provisions were CAD 599 million or 166 basis points, up from CAD 536 million in prior quarter
Non-retail PCL increase concentrated mainly in a single corporate account
Company-specific factors rather than broader macroeconomic or trade-related pressures drove the increase
Retail PCLs were lower quarter-over-quarter
Global Banking and Markets provisions were CAD 38 million or 8 basis points lower quarter-over-quarter
Non-retail watch-list remains below 2% of total outstandings
Brazil portfolio is a very selective and deliberate corporate franchise with high-quality borrowers
Brazil impaired PCLs have been around CAD 65 million prior to this quarter over an extended period
Financial Guidance and Outlook
Impaired PCLs expected to settle in the mid-50 basis point range for the remainder of 2026
PCLs expected to moderate from first half levels, though more gradual than previously anticipated
Canadian retail Q2 performance benefited from collections efforts, but prolonged inflationary pressures could further strain vulnerable client segments
Canadian commercial performance remains resilient and in line with expectations
International retail impaired performance expected to remain elevated in line with earlier outlook
Non-retail impaired PCLs expected to meaningfully moderate from Q2 levels
Allowances of CAD 7.3 billion or 96 basis points, now 24 basis points higher than Q1 2023
Allowances reflect a range of forward-looking macroeconomic scenarios
Average loan growth in Canadian Banking remains in the low-single digits, but expected to catch-up to broader market by end of year
International Banking net interest margin expected to be between 465 to 474 basis points for Q3 and Q4
International Banking net interest margin normal expectations of 440 to 450 basis points with current tailwind from no US rate cuts
Non-retail loan growth in International Banking expected to consolidate by 2027
Canadian Banking net interest margin expansion expected to continue for remainder of year
Canadian Banking margin expansion expected to be driven by better deposits, mix, better loan growth, and commercial growth
Canadian Banking margin expansion expected to be weighted to asset side as commercial loan book and business banking book increase
Return on equity expected to reach 14% plus in fiscal 2027, one year ahead of Investor Day target
Business mix shift expected to continue into fiscal 2027, resulting in strong revenue growth and higher returns
Organic growth is the first use of capital, followed by share buybacks and strategic tuck-in acquisitions
Share buybacks expected to remain consistent going forward
Valuation gap between Scotiabank and peers expected to narrow over time
